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EXPLANATORY MEMORANDUM
Point 28 of the Interinstitutional Agreement of 17 May 2006 between the European Parliament, the Council and the Commission on budgetary discipline and sound financial management[1] allows for the mobilisation of the European Globalisation Adjustment Fund (EGF) through a flexibility mechanism, within the annual ceiling of EUR500millionover and above the relevant headings of the financial framework.
The rules applicable to the contributions from the EGF are laid down in Regulation (EC) No 1927/2006 of the European Parliament and of the Council of 20 December 2006 on establishing the European Globalisation Adjustment Fund[2].
On 28 October 2011, Denmark submitted application EGF/2011/008 DK/Odense Steel Shipyard 2 for a financial contribution from the EGF, following redundancies in Odense Steel Shipyard in Denmark.
After a thorough examination of this application, the Commission has concluded in accordance with Article 10 of Regulation (EC) No 1927/2006 that the conditions for a financial contribution under this Regulation are met.
SUMMARY OF THE APPLICATION AND ANALYSIS
Key data:EGF Reference no. / EGF/2011/008
Member State / Denmark
Article 2 / (a)
Primary enterprise / Odense Steel Shipyard
Suppliers and downstream producers / 4
Reference period / 01.05.2011 - 31.08.2011
Starting date for the personalised services / 31.10.2011
Application date / 28.10.2011
Redundancies during the reference period / 585
Redundancies before and after the reference period / 396
Total eligible redundancies / 981
Redundant workers targeted for support / 550
Expenditure for personalised services (EUR) / 9487675
Expenditure for implementing EGF[3] (EUR) / 443255
Expenditure for implementing EGF (%) / 4,5
Total budget (EUR) / 9930930
EGF contribution (65%) (EUR) / 6455104
1. The application was presented to the Commission on 28 October 2011 and supplemented by additional information up to 8 March 2012.
2. The application meets the conditions for deploying the EGF as set out in Article 2(a) of Regulation (EC) No 1927/2006, and was submitted within the deadline of 10 weeks referred to in Article 5 of that Regulation.
Link between the redundancies and major structural changes in world trade patterns due to globalisation or the global financial and economic crisis
3. In order to establish the link between the redundancies and the global financial and economic crisis, Denmark argues that shipyards in Europe over the last decades have been losing substantial market shares to Asia. The global financial and economic crisis then further affected the global shipbuilding market, such that, according to the Community of European Shipyards' Associations (CESA), the European orderbook dropped from 13,692millionCGT[4] to 9,470millionCGT between 2008 and 2009, and further to 6,394 million CGT in 2010. New orders, having fallen from 2,114 millionCGT to 561millionCGT between 2008 and 2009, recovered to 2,459 million CGT in 2010, still less than half of the pre-crisis level of 5,425 million CGT in 2007.
4. In its annual report for 2010-2011[5], published in Brusels in August 2011, CESA writes : "The coming two years will remain very difficult for the industry. Only a few yards have been able to secure healthy orderbooks for 2012 and beyond. Consequently, the employment impact resulting from the demand collapse from 2008 and 2009 will hit the European shipbuilding industry mainly in 2011 and 2012".
The CESA annual report shows that the shipbuilding workforce in Europe declined by 23% over the past three years, from 148792 in 2007 to 114491 in 2010. The workforce on new buildings dropped even more sharply, by 33%, from 93832 in 2007 to 62854 in 2010.
5. The decision to close Odense Steel Shipyard was taken on 10 August 2009, and a programme was agreed with all employees regarding the ships that would still be finished at the yard and thus, the timing of the redundancies required. A first application for EGF funding in support of the first wave of 1356 redundant workers was made by the Danish authorities on 6 October 2010 and, following approval of the Commission's proposal[6] by the Council and the European Parliament, the funds were paid out on 2 August 2011. It was understood at the time of the first application that a second would follow, to take care of the later and final wave of redundancies, also including the workers made redundant by some of the suppliers to the shipyard.
6. This is the fourth EGF case in the shipbuilding sector. The arguments presented in the three previous cases (EGF/2010/001 DK/Nordjylland[7], EGF/2010/006 PL/H. Cegielski-Poznan[8] and EGF/2010/025 DK/Odense Steel Shipyard[9]) remain valid.
Demonstration of the number of redundancies and compliance with the criteria of Article 2(a)
7. Denmark submitted this application under the intervention criteria of Article 2(a) of Regulation (EC) No 1927/2006, which requires at least 500 redundancies over a four-month period in an enterprise in a Member State, including workers made redundant in its suppliers and downstream producers.
8. The application cites 509 redundancies in Odense Steel Shipyard during the reference period from 1 May 2011 to 31 August 2011 as well as a further eight from G4S (the security company operating the main gate at OSS), 67 from YIT (providing maintenance services for the equipment and machines at the yard and installing the electrical systems on the ships built there), and one from BM Steel Construction (specialists helping with the building of navy vessels), making a total of 585 redundancies from Odense Steel Shipyard and its suppliers. In addition, 396 workers from these four companies as well as Persolit (another provider of maintenance and electrical systems) were made redundant before and after the reference period. All of these redundancies were calculated in accordance with the first indent of the second paragraph of Article 2 of Regulation (EC) No 1927/2006.
Explanation of the unforeseen nature of those redundancies
9. The Danish authorities argue that the closure of the shipyard and the resulting redundancies could not have been foreseen. The shipyard owners invested heavily into the yard until 2009; this would not have happened if the closure had been expected. It must be noted that this is one of the biggest and most modern shipyards in Europe, holding records such as that of having built (in 2006-2008) the biggest container ships in the world, Emma Maersk and her seven E-class sisters. The yard has been known for consistently designing and building innovative vessels that apply the newest technology in design and equipment.
Demonstration of the redundancies and identification of the dismissing enterprises
10. The application relates to 981 redundancies in total in Odense Steel Shipyard and four of its suppiers. Following observations made during the current Odense Steel Shipyard implementation, the applicant Member State concluded that around 55 to 60% of the workers affected (estimated at 550) would wish to benefit from the EGF measures, while the other workers would either find new employment themselves or decide to retire from the labour force.
11. The break-down of the targeted workers is as follows:
Category / Number / PercentMen / 531 / 96,5
Women / 19 / 3,5
EU citizens / 550 / 100,0
Non EU citizens / 0 / 0,0
15-24 years old / 25 / 4,5
25-54 years old / 431 / 78,4
55-64 years old / 94 / 17,1
> 64 years old / 0 / 0,0
12. There are no workers with longstanding health problems or disabilities among either the affected or the targeted workers.
13. In terms of occupational categories, the break-down is as follows:
Category / Number / PercentLegislators, senior officials and managers / 4 / 0,7
Professionals / 18 / 3,3
Technicians and associated professionals / 376 / 68,4
Clerks / 12 / 2,2
Service workers and shop and market sales workers / 66 / 12,0
Craft and related trade workers / 4 / 0,7
Elementary occupations / 70 / 12,7
14. In accordance with Article 7 of Regulation (EC) No 1927/2006, Denmark has confirmed that a policy of equality between women and men as well as non-discrimination has been applied, and will continue to apply, during the various stages of the implementation of and, in particular, in access to the EGF.
Description of the territory concerned and its authorities and stakeholders
15. Odense is Denmark's third largest city with almost 200000inhabitants. The city is in the centre of the island of Funen, where the total population is close to 500000. Funen is the eastern part of the region of Southern Denmark, which has a total of 1200000inhabitants. The infrastructure of both Funen and the region is well developed and the working population increasingly commutes to work outside their home towns. In the case of the Odense Steel Shipyard workers, however, commuting cannot be seen as the solution to their employment problem, as there are few employment opportunities for workers elsewhere on the island and no labour shortage in Denmark as a whole in the metallurgical sector. Major efforts will therefore have to be made to prepare the redundant workers for new jobs.
16. Odense has access to the sea via a canal and the Odense Fjord, on which Odense Steel Shipyard is located in the small town of Munkebo (5500inhabitants). Munkebo is part of Kerteminde Municipality, forming the northeast part of Funen.
17. In 2008, the total workforce in Odense and Kerteminde was 109000people. The direct losses at Odense Steel Shipyard covered by the two applications therefore amount to around 2% of the workforce. It is estimated that the indirect job losses will be as heavy as the direct ones, so that the shipyard closure is regarded as a major crisis in the regional economy.
The educational standard of the employed workforce in Kerteminde is below both the national average and the average in Funen. In 2008, about 27,3% of the workforce in Kerteminde had received some further education, while the corresponding figure for Funen was 33% and the national average was 34,8%.
18. Both the municipalities of Odense and Kerteminde are closely involved in this application, which they have supported from the outset.
Expected impact of the redundancies as regards local, regional or national employment
19. The general employment situation deteriorated sharply in Denmark during 2009 and 2010. Unemployment rose from a record low of 3,4% for the year 2008 to a new high of 7,6% in 2010 (source: Eurostat[10]).
20. The industrial structure of Kerteminde is characterised by a high share of employment in manufacturing, particularly in metallurgy. Many jobs in this industry have already been lost to other countries with lower wages. The shipyard workers being dismissed have a high technical expertise which is difficult to apply in other industries in Funen or even the whole of Denmark. Many of them have worked in the shipyard all their lives and their parents may have worked there too.
In addition, the shipyard is being wound down in stages, with groups of workers being dismissed as the final ship orders are completed. The previous wave of redundancies, preceding this cohort, is currently aspiring to the potentially suitable new jobs being created. Without significant retraining, it will be even harder for this second wave of redundant workers to find new employment.
21. Since the announcement of the closure in August 2009, a consortium of local, regional and national stakeholders has discussed and formulated a strategy for new growth opportunities in the region. It is this strategy that is taking shape now and is guiding the choice of measures in the application.
Co-ordinated package of personalised services to be funded and a breakdown of its estimated costs, including its complementarity with actions funded by the Structural Funds
22. The Region of South Denmark is, on the one hand, defining and designing measures which can be taken under the Lisbon goals with the objective of strong European competitiveness. The regional Growth Forum uses both ESF and ERDF funding, as well as national labour market assistance to achieve these long-term goals of promoting new growth industries in the area.
23. In order to help these immediate redundancies, however, more specific activities need to be undertaken. These include education, training, employment incentives and support for entrepreneurship. The target group of workers are already highly skilled, but in a field where the outlook for future employment looks bleak. Hence, the measures proposed for them will be somewhat more costly than would be the case for other workers in mass layoffs, which often concern people with relatively low skills.
– Basic course and clarification: It is estimated that this will be taken up by some 55% of all the redundant workers, who constitute the group of targeted workers. The course will run over an average period of four weeks and will contain both group-based teaching and additional one-to-one counselling. The objective is to help the workers to understand their own situation and to acquire the motivation to accept a complete reorientation, to understand the opportunities open in the region, to identify their own competencies, to identify opportunities of interest to them, and to decide on further measures they wish to take. This measure will involve much more intensive and personalised counselling than the Job Centres are normally able to provide.